Runaway home prices in New Zealand’s largest city are spreading through the rest of the country, potentially snuffing out the chance of further cuts in official interest rates – just as a scare over China’s slowing growth argues for more stimulus.

For years the Reserve Bank of New Zealand (RBNZ) has been battling to contain house price inflation to the booming harbour city of Auckland, fearing its spread would encourage a binge of borrowing among already heavily indebted households.

Yet it seems to be losing the war as Aucklanders, priced out of their local market or keen to cash in suburban homes for a seaside upgrade, turn to nearby regions.

“In the past 12 months things have come to a point where there's this Auckland exodus,” said Ross Stanway, the chief executive of Realty Services, which owns real estate and property management companies throughout the Central North Island.

In the past 12 months things have come to a point where there's this Auckland exodus

Ross Stanway, Realty Services

That’s a headache for the central bank which cut interest rates as recently as December in an effort to offset the effect of falling prices for New Zealand’s major dairy exports and a slowdown in its biggest market, China.

Since then, concerns about China’s prospects have only intensified, but so has the upward pressure on home prices.

“I think the inflation that's starting to occur outside of Auckland will be part of the reason they (the RBNZ) will feel too nervous to cut rates any further,” said Craig Ebert, senior economist at BNZ.

In the dairy heartland of Waikato, house price growth accelerated to almost 20 per cent by the end of last year, according to government valuer QV.

In Tauranga, a coastal city encompassing beach-side surfing towns, prices rose more than 18 per cent.

The RBNZ has had some tentative success cooling the Auckland market by tightening a range of home lending rules, including setting loan-to-valuation ratios that target the city specifically.

The central bank may try broadening those tight restrictions across the country, but this would be unlikely to solve the underlying problem – housing supply that is not keeping pace with demand, a factor amplified by New Zealand’s record immigration levels last year.

“It's more to take a bit of heat out of the market but it's not a long-term solution,” said Christina Leung, senior economist at the New Zealand Institute of Economic Research, referring to the RBNZ’s loan-to-value ratios.

“Ultimately what we need is for an increase in supply to catch up with that surge in demand that we've had given the strong migration inflows.”